Friday, October 31, 2008

Panicked Traders Take VW Shares on a Wild Ride – (www.nytimes.com) Two more American hedge funds (including David Einhorn again) take it up the ass!!! The auto industry is struggling, but for a few minutes on Tuesday, Volkswagen became the most valuable company in the world, one with a market value greater than Apple, Philip Morris and Intel combined. That soaring value reflected engineering of a financial, rather than automotive, sort. It came as stock traders scrambled when Porsche, a rival seeking to build one of Europe’s great car dynasties, revealed it had increased its holdings in VW, giving it an economic stake equal to about 75 percent of the company’s voting shares. Volkswagen’s stock soared to as high as 1,005 euros a share, about $1,258, on Tuesday before closing at 918 euros. The shares ended last week at 210 euros. The rise appears to have come from a short squeeze of historic proportions, as speculators who had borrowed the stock and sold it scrambled to buy shares. Many had expected the share price to fall after Porsche gained control and stopped buying shares. Among the known short sellers are two large American hedge funds, Glenview Capital and Greenlight Capital. It is not clear if, or at what price, they covered any of their short positions. Porsche now has huge paper profits, while some Wall Street firms may be facing losses that are just as big. Whoever sold Porsche the options might have been scrambling to buy shares this week to cut risk. When the options expire, Porsche will receive the difference between the market price of the shares and the exercise price of the options. That could amount to tens of billions of euros. It seems unlikely that Porsche would have had the cash to exercise the options if it were required to pay for them and take delivery of the shares, but cash settlement means it will not have to put up cash if the options are profitable. Shares in Morgan Stanley, Goldman Sachs and Société Générale of France tumbled during trading Tuesday, but the American firms made up the losses in the last hour of trading. Jeanmarie McFadden, a spokeswoman for Morgan Stanley, said the firm had less than $25 million in exposure to Volkswagen. A person who had talked to Goldman officials, but who refused to be quoted by name, said that firm did not have a large exposure to Volkswagen.

Fidelity May Lay Off 9% of Work Force - (online.wsj.com) There could be more layoffs in the mutual-fund industry as investors have been pulling money out of stock funds in record amounts. In Boston, Fidelity Investments is considering a plan to reduce head count as it suffers negative cash flow in its stock mutual funds, say people briefed on the matter. These people say layoffs could include as many as 4,000 employees, or about 9% of Fidelity's work force, and would affect a number of Fidelity units, including its core investment-management arm. Anne Crowley, spokeswoman for the Boston fund company, declined to say whether layoffs were coming. She said Fidelity has been reviewing all of its costs and staffing amid the market's turmoil. The company is "very stable, and very strong, but certainly these are extraordinary times," Ms. Crowley said. Mutual-fund companies earn much of their money from fees assessed as a percentage of assets, meaning that market declines and redemptions of fund shares have a direct impact on the bottom line.

Luxury houses going into foreclosure - (www.bizjournals.com) In a sign that just about everyone is being hit hard by the economic downturn, a new report shows 33 luxury properties have been, or are on the verge of being, repossessed. The homes, valued at $1 million to $5 million, include 14 luxury condos and 19 single-family estates on or near the water in Miami-Dade, Broward and Palm Beach counties, according to a new report from Condo Vultures. Most of the distressed properties are in Miami (11), Miami Beach (8), Hollywood (4) and Coral Gables (3). Aventura, Boca Raton, Coconut Grove, Fisher Island, Fort Lauderdale, Hallandale Beach and Sunny Isles Beach each have one distressed property priced at $1 million or more that is in foreclosure or already owned by the bank, according to the report. “There are about 109,000 residences for sale in South Florida today, and 8,100, or 7 percent, of these residences are priced at $1 million or more,” said Peter Zalewski, a principal with Condo Vultures. “Statistically, to have 33 luxury properties in trouble from a pool of 8,100 residences is not dramatic. Still, it is bit surprising that 33 luxury properties have been or are on the verge of being repossessed.”

Alan Greenspan: Public Enemy Number One - (www.globalresearch.ca) But given the gravity of today's financial crisis, one name stands out above others. The "maestro," as Bob Woodward called him in his book by that title. The "Temple of Boom" chairman, according to a New York Times book review. Standing "bestride the Fed like a colossus." Now defrocked as the "maestro" of misery. Alan Greenspan. From August 11, 1987 to January 31, 2006, as head of the private banking cartel euphemistically called the Federal Reserve. That Ron Paul explains isn't Federal and has no reserves. It represents bankers who own it. Big and powerful ones. Not the state or public interest. It prints money. Controls its supply and price. Loans it out for profit and charges the government interest it wouldn't have to pay if Treasury instead of Federal Reserve notes were issued. People, as a result, pay more in taxes for debt service. The nation is more crisis-prone. Over time they increase in severity. The current one the most serious since the Great Depression. Potentially the greatest ever. The result of Greenspan's 18 year irresponsible legacy. He championed deregulation and presided over an earlier version of today's crisis. The Reagan-era savings and loan fraud. It bankrupted 2200 banks. Cost taxpayers around $200 billion and for many people their savings in S & Ls they thought safe. In the 1990s, he engineered the largest ever stock market bubble and bust in history through incompetence, subservience to Wall Street, and dereliction of duty. In January 2000, weeks short of the market peak, he claimed that "the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever....Lofty stock prices have reduced the cost of capital. The result has been a veritable explosion of spending on high-tech equipment....And I see nothing to suggest that these opportunities will peter out anytime soon....Indeed many argue that the pace of innovation will continue to quicken....to exploit the still largely untapped potential for e-commerce, especially the business-to-business arena." A week later, the Nasdaq peaked at 5048. Lost 78% of its value by October 2002. The S&P 500 49% from its March 2000 high to its October 2002 bottom. Individual investors were left high and dry as a result. For Mr. Greenspan, it was back to engineering multiple bubbles with 1% interest rates and a tsunami of easy money. He advocated less regulation, not more. Voluntary oversight. The idea that markets work best so let them. Government intervention as the problem, not the solution. In the mid-1990s, he told a congressional committee:

Greenspan Says, "Who Could Have Known?" - (www.truthout.org) That's right, the former Maestro told Congress last week, when asked about the meltdown of the housing bubble and the resulting financial crisis, "we're not smart enough as people. We just cannot see events that far in advance." Unfortunately, this sentence is even worse in context. Greenspan told the committee about the brilliant economists on staff at the Federal Reserve Board. His point was that if this group could not see the housing bubble, and the risks it posed to the economy, then it was not humanly possible to see it. The reality is that it was possible - in fact, easy - to recognize the housing bubble as early as the summer of 2002. House prices nationwide had substantially outpaced inflation in the years since 1996 (coinciding with the stock bubble) after just tracking the rate of inflation for the prior hundred years. There was nothing in the fundamentals of supply or demand that could explain this run-up.

Stockton City Hall's Brilliant Plan: Flip Houses - (www.recordnet.com) City Hall intends to flip houses, using $12.1 million from the federal government to buy and restore abandoned or foreclosed homes, then sell or rent them out. Interim Housing Director Bob Bressani proposed to a City Council panel on Wednesday that the city retain nonprofit developers to implement the program, which officials said could improve neighborhoods damaged by the foreclosure crisis. Bressani proposed spending $7.2 million buying, renovating and selling houses, and another $3 million buying and restoring properties for rent. The rest would be spent on a down payment assistance program, on demolitions of blighted properties and on overhead, officials said. "This is kind of a windfall," Councilman Steve Bestolarides said. "This is going to give us an opportunity to really deliver something." The city intends for developers to buy homes at less than market value - perhaps by purchasing them in bulk - passing savings on when properties are resold.

German province blew $3.5 billion on bad US mortgage debt - (www.bloomberg.com) Teachers at the Clara Zetkin Middle School in Freiberg, Germany, were counting on a budget surplus to ease staff shortages across the state of Saxony. Those hopes have faded as a result of bets made by state- owned Landesbank Sachsen Girozentrale on structured investments backed by mortgages in the U.S. The German lender loaded up on asset-backed securities and derivatives manufactured and sold by Wall Street amounting to more than 27 times the bank's equity. Now Saxony, which pledged taxpayer money as a guarantee against losses, is on the hook for 2.8 billion euros ($3.5 billion). ``They gambled away money needed for Saxony's teachers,'' said Wolfgang Renner, 55, who teaches math and physics at the 106-year-old yellow-brick school in Freiberg, named for a former Communist Party leader.

Cost of crash: $2,800,000,000,000 so far - (www.guardian.co.uk) Autumn's market mayhem has left the world's financial institutions nursing losses of $2.8tn, the Bank of England said today, as it called for fundamental reform of the global banking system to prevent a repeat of turmoil "arguably" unprecedented since the outbreak of the first world war. In its half-yearly health check of the City, the Bank said tougher regulation and constraints on lending would be needed as policymakers sought to learn lessons from the mistakes that have led to a systemic crisis unfolding over the past 15 months.

White House tells banks to waste bailout money on crap loans - (www.sfgate.com) An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans. "What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said. Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government. "They will be watching very closely, and they're working with the banks," she said. Anthony Ryan, Treasury's acting undersecretary for domestic finance, made the same point in a speech in New York before financial executives. "As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy," Ryan told the annual meeting of the Securities Industry and Financial Markets Association. "It is in a strengthened institution's best financial interest to increase lending once it has received government funding." Said Perino: "The way that banks make money is by lending money. And so, they have every incentive to move forward and start using this money." There has been some evidence of easier lending, Perino said. But it's not enough to calm stock markets or help small businesses that depend on a free flow of credit, not just to expand but to maintain operations through making payroll or financing inventories.

Thursday, October 30, 2008

Pickens's Investors Ask for Exit - (online.wsj.com) I figured he was in trouble when he said oil prices would never hit $120/barrel in our lifetime. About half of the investors in T. Boone Pickens's energy-oriented equity hedge fund have asked to withdraw their money on the heels of losses of about 60% this year, according to people close to the matter. Mr. Pickens and his investment firm have lost $2 billion since peaking in late June, Mr. Pickens said Sunday on the CBS program "60 Minutes." Half of the investors in T. Boone Pickens's energy fund asked out. His fund, BP Capital, will have about between $400 million and $500 million after expected withdrawals. It started the year with about $2 billion. A few weeks ago, Mr. Pickens moved the fund almost entirely into cash to help ride out the volatility in the energy patch, according to people close to the matter. Mr. Pickens is expected to personally hold about 20% of the fund after the withdrawals, or about $100 million, after he does some selling along with his investors. He has lost an estimated $400 million or so in his funds this year. The hedge fund has been hurt by the recent plunge in energy prices and tumbles in energy stocks. Mr. Pickens wouldn't comment.

Crash of 1929 Headlines - (www.pbs.org) Good site with film and news stories from 1929 on. Stock market news moved from the financial pages to the front pages as the number of first-time investors grew in the 1920s. Throughout 1929 daily papers reported that the future looked bright for investors -- even after the devastating market crash in October. Read newspaper excerpts from three New York papers: The World, The New York Herald Tribune, and The New York Time

More Car Dealers Shut Down - (online.wsj.com) With credit drying up and new-vehicle sales slumping to a 25-year low, car dealerships from New Jersey to California are going out of business at an accelerating pace, threatening greater economic pain for communities around the country. Weeds grow along an empty car lot at a Chevrolet dealership in Clarks Summit, Pa., that closed in August. The National Automobile Dealers Association estimates 700 new-car dealerships will close this year, and taking with them an estimated 37,100 jobs. That is a heavy blow to a key piece of the U.S. economy. The country's 20,700 dealerships accounted for $693 billion in sales last year, or 18% of all retail sales, according to NADA. Dealership wages and salaries make up 13% of the nation's retail payroll. The rapid disappearance of dealers could also complicate the challenges facing General Motors Corp., Chrysler LLC and Ford Motor Co. After years of market-share losses, each has been left with more dealers than they need, and have been pushing dealers to consolidate. But a sudden loss of some of the bigger players could make it harder for the Big Three to maintain sales. GM, for example, suffered a setback recently when Bill Heard Enterprises Inc., one of the largest sellers of Chevrolet-brand vehicles in the country, filed for bankruptcy-court protection and closed its chain of 14 stores.

Credit Crisis Slows Economy in Once-Hot Poland - (www.nytimes.com) Poles were jolted last week by the sudden discovery that they were not immune to the financial crisis contagion rippling across the globe. The plunging stock market here and the drastic weakening of the Polish currency proved, as in so many corners of the fast-growing developing world, how wrong they were. The go-go atmosphere in Poland has abruptly stilled to a cautious wait-and-see. Developers across the country have halted building projects for thousands of apartments as banks have grown stingy with lending. The boomtown energy here has been replaced by nervous eyeing of the once powerful zloty, as it retreats in value against the dollar and the euro. The daily newspaper Dziennik summed up the mood on Friday with a front-page headline, “Welcome to the Tough Times.” In a country that seemed to be on the fast track to full membership in the Western club, the question on everyone’s lips is, “Why us?” Emerging markets that seemed healthy, even thriving, barely a month ago are beginning to find themselves caught in the worldwide panic. This sharp turn has caught even the local financial guardians and experts by surprise, as they have clung to their indicators of fundamental economic soundness while forgetting that capital stampedes rarely tarry for fine distinctions.

Pawn shops becoming the banks of last resort – (www.miamiherald.com) In T-shirt and baggy shorts, Marc Howard rolls into work dressed like he's ready for the gym. No, he's not a personal trainer -- try loan officer. But the business Howard runs, the place across from Broward Sheriff Office headquarters that's packed with electronics, tools and jewelry, is no bank. It's a pawn shop. From behind security bars at the back, Howard doles out loans from $20 to $20,000 -- in cash. And he's mighty busy these days. As the economy slows and banks slam the brakes on lending, pawn shops like Fort Lauderdale's Classic Pawn find their offers of quick cash-for-goods increasingly in demand. And while the young working class remain pawn shops' bread and butter, pawn outlets are more and more becoming the bank of last resort for people with higher incomes and even for small business owners who otherwise couldn't keep the lights on. These customers are also pawning more expensive items, and are less likely to come back and reclaim their property, statistics show.

Hedge Funds Slam 'Gates' on Their Edgy Investors - (online.wsj.com) Some high-profile hedge-fund managers have restricted how much and when investors can withdraw their funds, as the industry struggles to stem a wave of redemptions and poor performance.The restrictions cover hedge-fund assets worth an estimated $21 billion. Centaurus Capital LP, and Polygon Investment Management Ltd. have put "gates" in place, limiting what proportion of assets investors can withdraw on one redemption date.

A case of balance as credit card rules change - (www.sfgate.com) Over the past 40 years, credit cards have become fixtures in the American wallet. But the worldwide financial crisis and increased regulatory pressure in Washington are starting to reshape the lending system in ways that are making plastic harder to get and more costly to use. The changes will affect American consumers differently, as they carry nearly a trillion dollars of credit card debt, according to Federal Reserve estimates. For the majority of cardholders, who pay off their balances each month, this buy-now, pay-later system will remain a convenience that often comes with discounts and other benefits. But nearly 50 million Americans carry balances from month to month - they're called rollovers in credit card parlance. And many of these are hard-pressed families who use credit to cover the rising prices of gas, food, health care and housing, said Elizabeth Warren, a law professor and debt expert at Harvard University. "It would be wonderful to report that all we have to do is cut back on extra spending, but most of the people who carry credit card balances just can't pay their expenses on their declining real incomes," Warren said.

Austria cancels its bond offering - (www.ft.com) Austria, one of Europe’s stronger economies, cancelled a bond auction on Monday in the latest sign that European governments are facing increasing problems raising debt in the deepening credit crisis. The difficulties of Austria, which has a triple A credit rating, highlights the extent of the deterioration, which saw benchmark indicators of credit risk such as the iTraxx index hit fresh record wides yesterday.

Easthampton Burning? - (ftalphaville.ft.com) As the world faces up to the risk of emerging market failure, banks’ current exposure - as estimated by the Bank of International Settlements (BIS) - is perhaps worth reiterating. According to Ambrose Evans-Pritchard of the Telegraph, the BIS states that Western European banks hold almost all the exposure to the emerging markets: They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles. He quotes Morgan Stanley’s currency guru Stephen Jen as saying an emerging market crash is a vastly underestimated risk, which threatens to become “the second epicentre of the global financial crisis”. The big emerging markets banking players are to be found in Austria, Switzerland, Sweden, UK and Spain, with exposure ranging from 50 per cent of GDP (Austria) to 23 per cent (Spain). Conversely America’s exposure is just small wafer of that at 4 per cent.

Danny Schechter: We need to stop all foreclosures - (www.therealnews.com) More liberal and socialistic propaganda coming from Danny Schechter. In part two of our interview with Danny Schechter, Danny provides up-to-date information about the housing crisis in the US. With 21 million families now finding their homes worth less than their remaining mortgage payments, the banks are being forced to readjust the loans in order to keep people in their homes. Danny also outlines some of the grassroots work that is being done in order to stem the tide of evictions. One organization that has a long history of work in this area is ACORN, and Danny believes that the voter registration scandal surrounding ACORN is more illusion than substance, created as a distraction from the important issues of the day.

Central Banks Continue Retreat from 'Alt-AAA' Agency Debt - (www.housingdoom.com) - Reverberations of the “Effective Guarantee” continue. “Fannie, Freddie Mortgage-Bond Spreads Hit Widest Since March”, by Jody Shenn, Bloomberg, October 27, 2008.The increase in mortgage-bond spreads has come as the debt costs for Fannie and McLean, Virginia-based Freddie, the largest holders of their own securities, again rose to records last week after the companies’ regulator sowed confusion over their level of federal support. Foreign central-bank holdings of agency debt and agency mortgage bonds dropped $47 billion over four weeks to $923.4 billion in the week ended Oct. 22, Federal Reserve data show. The holdings are down from a record $983.9 billion on July 16. “People have developed a lot more of their own problems in the last six weeks, than they had three months ago,” RiverSource’s Jackson said in a telephone interview. “Countries, really just like banks, need to hold liquidity to prop up their own financial well-being and they’re not going to lend that out to other people.” When taking Fannie and Freddie over, Treasury Secretary Henry Paulson said he would direct the companies to increase their $1.5 trillion mortgage-asset portfolios and have his department start buying their home-loan bonds to help lower the cost of home financing.

I fear the worst is yet to come - (business.timesonline.co.uk) Nouriel Roubini: I fear the worst is yet to come. When this man predicted a global financial crisis more than a year ago, people laughed. Not any more... As stock markets headed off a cliff again last week, closely followed by currencies, and as meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom. For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis. Yet all these predictions and more came true. Few are laughing now. What does Roubini think is going to happen next? Rather worryingly, in London last Thursday he predicted that hundreds of hedge funds will go bust and stock markets may soon have to shut – perhaps for as long as a week – in order to stem the panic selling now sweeping the world. What happened? The next day trading was briefly stopped in New York and Moscow. Economic anxiety affects high school seniors weighing college ... - (www.mercurynews.com) Jonathan Kaslow, a high school senior and political junkie, is in the throes of applying to college. He's considering nearly a dozen schools, and his heart is set on Claremont McKenna, a private liberal arts school with an excellent political science department — and a nearly $49,000 annual price tag. Getting accepted is one thing. But with Wall Street unraveling and home-equity values plummeting, paying for it is another. The strain of the nation's economic crisis is trickling down to college-bound teenagers who are already stressing about their applications, some which are due Nov. 1. Through subtle and not-so-subtle hints from their parents, many are beginning to realize that the college of their dreams may not be affordable for their families. "About two to three days after Lehman Brothers went under, my Dad was really grumpy,'' said Jonathan, a Menlo-Atherton High School student who is seeking scholarships and assumes that he'll have to take out student loans. "When the Dow lost more than 700 points, that was the icing on the cake. The message from my parents changed from 'Apply wherever you want,' to 'Think about the UCs.' '' The tension runs from upper-middle-class families wondering how much money is left in their college fund to poorer students worried about $50 college application fees. "It's not 'Let's apply to all the Ivies and

Wednesday, October 29, 2008

Companies start competing for bailout cash - (biz.yahoo.com) Insurance firms, auto companies and foreign banks petition for part of $700 billion bailout. The bailout is now the hottest lobbying game in town. Insurers, automakers and American subsidiaries of foreign banks all want the Treasury Department to cut them a piece of the largest government rescue in U.S. history. The betting is that many with their hands out will be successful, especially with financial markets in a stomach-churning dive and predictions the economy is about to tumble into a deep recession. These groups argue that the credit squeeze is so severe and the risks to the economy so dire that their industries need financial support as well. The Treasury is considering requests from a variety of industries, but has not decided whether to expand the program, officials said Saturday. Lobbying efforts are intensifying. The Financial Services Roundtable wrote Treasury officials on Friday requesting that the initiative to buy $250 billion in bank stock grow to cover insurers, auto companies, securities dealers and U.S. subsidiaries of foreign companies, including banks. The Treasury's plan is intended to bolster banks' tattered balance sheets and get them to resume making loans. As the Treasury now interprets it, these additional groups would not participate in the bank stock program. They could receive help from a separate part of the $700 billion rescue that will buy bad assets from financial institutions.

California law delays foreclosures - (www.latimes.com) A new law mandating delays in foreclosure actions may create a fleeting lull, but observers wonder whether it will lead to widespread mortgage workouts. The number of people losing their homes in California hit a record high of nearly 80,000 in the last three months, but a new state law appears to be dramatically slowing the foreclosure process -- at least for now. Loan default notices, the first step toward foreclosure, fell to 94,240 for the three months that ended Sept. 30. That's down sharply from the record 121,673 for the previous quarter, according to research firm MDA DataQuick. The big drop came in September, when a new state law took effect that blocks lenders from initiating foreclosure proceedings until 30 days after contacting the borrower or making "due diligence" efforts to do so. Default notices sank to 14,995 in September, after averaging more than 40,000 for each of the five preceding months. "That new law virtually slammed the brakes on mortgage default filings," said Andrew LePage, a DataQuick analyst. "We don't know yet how many of those loans will get worked out versus just shifted to late this year or early next year."

Las Vegas real estate 'is in the toilet' - (www.lvrj.com) Southern Nevada's housing market hasn't found its bottom and could suffer further in coming months, a panel of real estate experts said Thursday. At the quarterly Crystal Ball housing outlook at Texas Station, home builders, real estate brokers and marketing consultants talked about how to survive hard times as analysts shared fresh evidence of an ongoing housing correction. "The truth as I see it today is that the real estate market in Las Vegas is in the toilet," said Larry Murphy, president of real estate research firm SalesTraq. "And the sad probability is that it will stay in the toilet a while longer." That's because the city's housing market hasn't finished recovering from the excesses of 2004, 2005 and 2006. Top among those overindulgences: Local builders put up many more homes than the market needed, Murphy said. Annual new-home deliveries peaked in 2005 at 38,000, even as Southern Nevada required just 25,000 new homes to meet consumer demand. That overbuilt market is correcting. Builders will construct only 11,000 new homes in 2008. That should jump to 15,000 units in 2009, and return to 25,000 yearly sales in 2011, Murphy said. New-home construction isn't the only housing indicator that continues to adjust. Housing prices spiked in 2004 and 2005, thanks in part to easy money flooding the market in the form of interest-only mortgages and no-documentation loans. "You could get a loan for a dead horse" at the market's pinnacle, Murphy said. The funding surplus helped push the median price of a resale home from $140,000 in 2001 to more than $275,000 by early 2006, including a $100,000 gain from 2004 to 2006. Since then, the market has shed that $100,000 increase, and the median price rests where it was five years ago, at $186,000.

US Army Prepares To Attack America - (from www.patrick.net with source at www.armytimes.com) The 3rd Infantry Division’s 1st Brigade Combat Team has spent 35 of the last 60 months in Iraq patrolling in full battle rattle, helping restore essential services and escorting supply convoys. Now they’re training for the same mission — with a twist — at home. Beginning Oct. 1 for 12 months, the 1st BCT will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks. It is not the first time an active-duty unit has been tapped to help at home. In August 2005, for example, when Hurricane Katrina unleashed hell in Mississippi and Louisiana, several active-duty units were pulled from various posts and mobilized to those areas. But this new mission marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.

Toll Brothers Chief on Housing Crash - (www.portfolio.com) Bob Toll scored big during the real estate bubble. Now, as sales stall and losses mount at Toll Brothers, the luxury homebuilder he helped found, he talks candidly about overbuilding, unwise land deals, greed-and how we can get out of this mess. On a bright morning in late July, the corporate headquarters of Toll Brothers, the luxury homebuilder that profited mightily from the latest housing boom, are uncannily silent. Outside chief executive Bob Toll’s office, swaths of cubicles sit vacant and bare, depopulated by deep layoffs. Inside, a Bloomberg terminal scrolls dismal updates: A new report says home prices are plummeting by record margins; in markets like Las Vegas and Miami, they’re off almost 30 percent. Toll Brothers’ stock is trading at about $20, down two-thirds from its 2005 high. Toll, compact and unassuming in a moss-colored suit, sits behind his desk in surroundings that seem incongruously modest for the man who stoked America’s demand for cathedral ceilings, Roman tubs, and four-car garages. We’re in a plain room overlooking a parking lot in an unremarkable suburban-Philadelphia office park. The only signs of excess are a helipad in the lot that the company laid down at the height of the boom to accommodate corporate choppers and the framed press clippings from those high-flying times that adorn the office’s walls. One headline reads BETTING AGAINST A HOUSING BUST. Toll, never one to mince words, is merciless as he dissects how his wagers went wrong. “These are bad times if there ever were,” he tells me. Perhaps no company better symbolizes the engorged consumption of the last real estate spree than Toll Brothers, which Bob founded with his brother, Bruce, in a one-room office four decades ago. During the height of the housing bubble, from 2004 to 2006, Toll Brothers reported nearly $16 billion in revenue, putting it in the top ranks of the industry. Its carefully cultivated brand—large, high-end suburban homes with all the latest must-have appliances—was among the most enviable in the business and catered to the yearning for bigger and better that the era’s easy credit allowed. Although Toll Brothers once had uncanny judgment, it has hit tough ground in the bust. Through the first nine months of 2008, Toll Brothers’ new sales contracts were down 49 percent from 2007, and 76 percent from 2005. The company reported a series of huge losses and has been forced to take massive write-downs—about $1.5 billion to date—on the value of its assets and landholdings. To mitigate the damage, Toll has laid off several thousand employees, nearly half his workforce, and walked away from numerous projects. Toll offers me no excuses and freely concedes that he made some foolish deals. “We boatloaded a bunch of real estate in ’04 and ’05 that is underwater today,” he says ruefully. Though Toll once prided himself on his ability to see a downturn coming, he admits to having been blindsided by this one’s startling swiftness and severity. Some have wondered whether the instincts that served him so well in the past were dulled during a long period of plenty. “His timing before this was always impeccable,” says Jeffrey Orleans, a Philadelphia-area homebuilder who has known Toll since childhood and admires him. “This recession, he’s getting a bit beat up like the rest of us.”

Farm-Credit Squeeze May Shrink Crops, Spur Prices, Food Crisis - (www.bloomberg.com) The credit crunch is compounding a profit squeeze for farmers that may curb global harvests and worsen a food crisis for developing countries. Global production of wheat, the most-consumed food crop, may drop 4.4 percent next year, said Dan Basse, president of AgResource Co. in Chicago, who has advised farmers, food companies and investors for 29 years. Harvests of corn and soybeans also are likely to fall, Basse said. Smaller crops risk reviving prices of farm commodities that sank from records in 2008 after a six-year rally that spurred inflation and sparked riots from Asia to the Caribbean. Futures contracts on the Chicago Board of Trade show wheat will jump 16 percent by the end of 2009, corn will rise 15 percent and soybeans will gain 3 percent. ``The credit situation is worrying even the biggest and best farmers,'' said Brian Willot, 36, a former University of Missouri commodity analyst who now grows soybeans on 2,000 acres in Brazil. ``For the financially weak, credit has dried up completely. For the strong, credit has been delayed and interest rates are higher.'' In Brazil, the world's third-biggest exporter of corn after the U.S. and Argentina, production may fall more than 20 percent because farmers can't get loans to buy fertilizer, said Enori Barbieri, a National Corn Producers Association vice president. The nation's coffee harvest, the world's largest, may drop 25 percent for the same reason, said Lucio Araujo, commercial director at farmer cooperative Cooxupe, located in Guaxupe.Borrowing costs increased and farmers struggled to get loans after the worst financial crisis since the Great Depression made banks and grain processors, including Cargill Inc. and Archer Daniels Midland Co., less tolerant of risk. Minnetonka, Minnesota-based Cargill and Decatur, Illinois- based Archer Daniels, the world's largest grain processors, are among the crop buyers to halt financing for growers in Brazil, said Eduardo Dahe, who represents the companies as president of the National Association of Fertilizer Distributors.

Tech Finance Defaults Rise; More Makers Offer Loans - (online.wsj.com) Troubles are brewing in the technology-financing business, the credit that greases many technology sales. Defaults on tech financings, loans that allow companies to purchase computers, software and other products, have spiked this year. The problems are surfacing after years in which such loans flowed freely. Now the banks and specialty lenders that most tech companies rely on to finance customer sales are retrenching, and financing terms are getting tougher. Some big tech companies, such as International Business Machines Corp., Oracle Corp. and Cisco Systems Inc., are stepping into the void -- lending more of their own money to customers

Tuesday, October 28, 2008

'Worst financial crisis in human history': Bank boss's warning as pound suffers biggest fall for 37 years - (www.dailymail.co.uk) October 27 - MarketNews International: "The UK is possibly facing the biggest financial crisis in human history, according to Bank of England Deputy Governor Charles Bean... 'We have had bank crises in the past but what is unique about this event is its sheer scale. It is global. It originated in the United States but its tentacles have spread across the world. Particularly in the last six weeks when financial markets really ground to a halt, and trust in the financial positions of a whole range of institutions have come into question. This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history'."

Winton's Harding `Worries' About Exchange Shutdowns, Holds Cash - (www.bloomberg.com) David Harding, founder of $15.5 billion Winton Capital Management LLC, said he is holding more cash on the possibility that exchanges may be closed. ``The thing I worry about is they shut exchanges,'' Harding said at the Hedge 2008 conference in London yesterday. ``If at all possible, I don't want to be exposed to that with my clients' money.'' Harding, 47, who is the ``H'' in the AHL Diversified Plc computerized trading program founded in 1987 and run by Man Group Plc, said Winton has about 95 percent of its assets in U.S. Treasury bills and cash or cash equivalents. That compares with about 90 percent a year ago. Futures markets require less cash up front to buy contracts than other investments such as stocks. Winton's cash balances are held in segregated accounts at two different custodian banks, rather than with prime brokerages, which Winton doesn't use. Nouriel Roubini, the New York University Professor who spoke at the same conference, told delegates ``don't be surprised'' if policymakers shut exchanges. Italian Prime Minister Silvio Berlusconi roiled markets on Oct. 10, first saying world leaders were discussing shutting down global financial exchanges, and then saying he didn't mean it.

GLG chief Emmanuel Roman warns thousands of hedge funds on brink of failure - (www.telegraph.co.uk) Emmanuel Roman, the co-chief executive of Europe’s biggest hedge fund GLG, has warned that thousands of hedge funds are on the brink of failure as the global economy contracts with unexpected severity. Emmanuel Roman, of GLG Partners, said 25pc-30pc of the world’s 8,000 hedge funds would disappear "in a Darwinian process", either going bust or deciding meagre profits are not worth their efforts. "This will go down in the history books as one of the greatest fiascos of banking in 100 years," said Mr Roman, who with Noam Gottesman, co-runs GLG, a former division of Lehman Brothers Holdings with assets of $24bn (£14.8bn). "There need to be some scapegoats, and the regulators are going to go hunt people. That will be good in the long run." His views were echoed by Professor Nouriel Roubini, a former US Treasury and presidential adviser known for his accurate prediction of financial crises, who estimated that up to 500 hedge funds would fail within months

Baby boomers spending less will contribute to a slowing economy ... - (www.presstelegram.com) "Baby Boomers have pumped up the global economy with their profligate ways for nearly two decades. It's been a great party. Now the music's over. Generalizations about the 79 million people born between 1946 and 1964 are overdone and easy to debunk... But what Baby Boomers of all persuasions have done, without dispute and to an unprecedented degree, is spend money instead of saving it... When Boomers ran out of cash, they financed their dreams. The U.S. household saving rate plunged to 2% of income in the 2000-2005 period, when Boomers were hitting their earning peak, from 10% during the early 1980s." Turmoil May Make Americans Savers, Worsening `Nasty' Recession - (www.bloomberg.com) The U.S. may be on its way to becoming a nation of savers, whether Americans like it or not. With home and stock prices declining and credit hard to come by, consumers who have fallen out of the savings habit are being forced to curb borrowing and rein in spending. That is bad news for companies catering to them, which will have to retrench as well. Detroit automakers may need to slash costs and merge as Americans hold onto their cars longer. Shopping malls might be forced to shut as retail traffic trails off. Hotels may have to shelve expansion plans as vacationers become stingier with their dollars. The big concern is that households, spooked by the turmoil in financial markets, will cut back rapidly and sharply, plunging companies into bankruptcy and deepening a recession that many economists say has already begun. ``If we did have a quick cut in spending, it could turn a pretty nasty recession into possibly the worst downturn we've seen in the postwar period,'' says Michael Feroli, a former Federal Reserve official now at JPMorgan Chase & Co. in New York. Even without a collapse of consumer spending, Feroli expects the economy to contract by 2 percent in both this quarter and the next. Tight Credit Curbs Growth in India - (www.nytimes.com) Customers come in a tiny trickle to the showroom of Uppal Motors, a Honda motorcycle dealership near here in an upscale satellite of India’s capital. This time of year, the showroom is usually packed, for it is the week before the Hindu festival of Diwali, when many Indians buy gifts and more costly items. But not this year. The call center workers and software programmers who normally shop here could afford a new motorcycle — if only the banks would lend to them, said Virender Uppal, the dealership’s owner, who added that sales were down 10 percent. “They cannot meet the terms and conditions of the bankers,” he said. “Money is not being extended to them.” Like so many countries, India is experiencing a credit crisis. The country, like many emerging markets, had little exposure to subprime home lending or to Western financial institutions. Still, the government is pulling out all its tools to combat the global financial turmoil, whose effects have been compounded by earlier decisions to tighten the money supply. And local businesses are grappling with a rapidly slowing economy.

Stockton, Calif., tries digging out - (www.usatoday.com) Two years ago, Sharon Halligan drove from Kentucky to California lamenting that she couldn't afford a home in the high-priced state. Her job search brought her here, and she rented. Then the 61-year-old Halligan watched prices tank as the subprime lending mess engulfed home after home. This month, the human resources manager moved into her $260,000 two-story home in Stockton after losing seven other bids on foreclosed homes. Thirty months ago, her new house appraised for $608,000. "Isn't it amazing?" she says, standing next to her U-Haul. Stockton, a boom-and-bust town hit early and hard by the nation's foreclosure crisis, is digging out of the financial excesses of its past. Here, two hours from the San Francisco Bay Area, more than 7,500 homes and condominiums have been lost to foreclosure since the end of 2006, says real estate researcher MDA DataQuick. The glut has cut median home prices by more than half, spurring multiple offers on foreclosed homes and record sales.

So When Will Banks Give Loans? - (www.nytimes.com) - In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist. It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction. In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, “the government wants not only to stabilize the industry, but also to reshape it.” Now they tell us. Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: “It couldn’t be clearer if they had taken out an ad.”

Slime-ball Greenspan Says He Was Wrong On Regulation, Tries to Blame Free Market for not Functioning Properly; Rep. John Yarmuth Should Have His Balls Cut Off for Bill Buckner Reference - (www.washingtonpost.com) Alan Greenspan, once viewed as the infallible architect of U.S. prosperity, was called on the carpet yesterday, pilloried by a congressional committee for decisions that contributed to the financial crisis devastating world markets. The former chairman of the Federal Reserve said the crisis had shaken his very understanding of how markets work, and agreed that certain financial derivatives should be regulated -- an idea he had long resisted. When he stepped down as Fed chairman less than three years ago, Congress treated Greenspan as an oracle, one of the great economic statesmen of all time. Yesterday, many members of the House Oversight and Government Reform Committee treated him as a hostile witness. "You found that your view of the world, your ideology was not right, it was not working?" said Rep. Henry A. Waxman (D-Calif.), the committee chairman. "Absolutely, precisely," Greenspan said. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well." Even Greenspan seemed genuinely perplexed yesterday by all that had happened, hard-pressed to explain how formerly fundamental truths about how markets work could have proved so wrong. Members of Congress who not long ago would seek Greenspan's blessing for their preferred public policies were at turns combative and disdainful. Rep. John Yarmuth (D-Ky.) called him a "Bill Buckner," referring to the Boston Red Sox first baseman who missed an easy ground ball against the Mets in the 1986 World Series, costing the team the game.

U.S. has plundered world wealth with dollar: China paper - (www.reuters.com) The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday. The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies. A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said. The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper. Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis. "The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University. Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.